In a groundbreaking move, Central Bank of Kenya (CBK) Governor Kamau Thugge has announced a strategic initiative to repurchase a significant portion of Kenya’s Ksh 298.1 billion Eurobond, set to mature in 2024. This announcement was made during the World Bank and International Monetary Fund (IMF) meetings in Marrakech, where Thugge clarified the details of this ambitious plan.
According to Thugge, the CBK plans to invest Ksh 74.4 billion, following the acquisition of new loans, to buy back a quarter of the Eurobond. This strategic move aims to allay concerns about Kenya defaulting on the loan. Thugge revealed that CBK is actively in talks with two commercial banks to secure loans ranging from Ksh 74.4 billion to Ksh 149 billion. Part of these funds will be allocated towards the Eurobond repurchase, liability management, and the remainder will support the national budget. Thugge emphasized the urgency of the buyback plan, expressing the desire to initiate the process as swiftly as possible.
Additionally, Thugge shared ongoing discussions with the IMF to enhance Kenya’s loan program, slated for review in November. He also disclosed negotiations with the World Bank for a substantial Ksh 111.7 billion cash injection in March 2024. Thugge even expressed openness to seeking “exceptional access” from the IMF, which would allow CBK to request funding beyond the typical limits. This move, if approved, would mark the third increase to the loan program, which was initially set at Ksh 342.8 billion in 2021.
This bold strategy follows a period of skepticism, notably from the National Treasury, which had previously expressed hesitance about repurchasing the Eurobond due to investors’ strong confidence in the government’s fiscal policy stance. In June, Treasury Director of Debt Management Haron Sirma had cast doubts on the feasibility of the repurchasing plan, citing concerns about investors’ willingness to sell before the bonds matured.
President William Ruto had previously announced the government’s intention to repurchase at least 50 percent of the Eurobond before the year-end, a plan met with resistance from investors. Their reluctance stemmed from the possibility of incurring losses, as redeeming the loan below its par value would impact their investments negatively.
Moody’s Investors Services’ Vice President and Senior Credit Officer David Rogovic emphasized the need for a detailed assessment of the buyback terms before determining whether it constitutes a distressed exchange and, consequently, a default.
Amidst these challenges, Governor Thugge’s strategic plan signals a determined effort to navigate the complexities of international finance, positioning Kenya for a financially stable future.
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